Chapter 6: Reporting & Interpreting Sales Revenue, Receivables, and Cash

Chapter 6

Revenue Recognition Principle

The principle that revenue should be recognized when a company transfers promised goods or services to a customer in the amount expected to receive.

Transferred

Occurs when titles and risks of ownership transfer to the buyer.

FOB Shipping Point

The buyer takes possession of the goods once they are shipped.

FOB Destination

The buyer takes possession of the goods once they reach their destination.

Gross Revenues

The total revenue account before deductions for contra-revenue accounts.

Contra-Revenue Account

An account that offsets revenue accounts, such as discounts and returns.

Credit Card Discounts

Fees charged by credit card companies that reduce the recorded revenue.

Sales Discounts

Reductions in sales revenue to encourage prompt payment from customers.

Sales Returns & Allowances

The right of customers to return unsatisfactory or damaged merchandise and receive a refund.

Bundled Goods & Services

Goods and services sold together under a single sales contract.

Receivables

Amounts owed to a company by customers for credit sales.

Allowance for Doubtful Accounts

An account used to estimate and account for bad debts.

Writing Off Specific Accounts

The process of removing an uncollectible account receivable from the books.

Percentage of Credit Sales Method

A method to estimate bad debt expense based on historical percentages of credit sales.

Aging of Accounts Receivable

A method of estimating bad debt by analyzing the age of receivables.

Early Payment Incentive

Discount Percentage / # of Days in Discount Payment, Net (total sales less returns) / Maximum Credit Period